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It's the Behavior, Stupid

Saturday, June 16, 2012
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We are at the tail end of an era that has focused almost entirely on the innovation of products and services, and we are at the beginning of a new era that focuses on the innovation of what I like to call "behavioral business models."

These models go beyond asking how we can make what we make better and cheaper, or asking how we can do what we do faster. They are about asking why we do what we do to begin with. And the question of why is almost always tied to the question of how markets behave.

When Apple created iTunes it didn't just create a faster, cheaper, better digital format for music, it altered the very nature of the relationship between music and people.

eBay did not just create a platform for auctions, it changed the way we look at the experience of shopping and how community plays a role in the experience.

When GM created OnStar it didn't just make getting from point A to point B faster, it changed the relationship between auto manufacturer and buyer, and fundamentally altered the reason we buy a car.

Google did not invent Internet search -- there were nearly fifty software vendors delivering Internet-based search, some for as long as twenty-five years before Google! -- but Google changed the way we interact with the Internet and how our behaviors are tracked and analyzed, allowing advertisers to find and pay for buyers in a way that was inconceivable before.

All of these are examples of innovations in behavior that led to entirely new business models. Yet we continue to be obsessed with technology innovation. To paraphrase James Carville's now-popular political pun, "It's not the technology, it's the behavior, stupid."

The greatest shift in the way we view innovation will be that the innovation surrounding behavior will need to be as continuous a process as the innovation of products has been over the last hundred years. It's here that the greatest payback and value of innovation in the cloud has yet to be fully understood and exploited.

Unfortunately, far too many of us are stuck in an old model of innovation -- just as surely as we are stuck in line waiting to take part in the new one.

Innovative organizations are those that can depart quickly from their planned trajectory and jump onto a new opportunity; they're organizations that recognize and take an active role in introducing new behaviors that were unknown.

It is ultimately the speed with which companies do this and the willingness to experiment in new and unanticipated areas that determines the extent to which their innovation is "open."

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This changes the idea of open innovation to mean more than going outside the company to find new ideas from experts; it means developing a collaborative innovation model that intimately binds the market to the process of innovation, in lockstep.

That does not suggest that companies are held hostage by their customers, who only know to ask for incremental innovation in what they have already experienced. Instead, it means that companies need to push the envelope of innovation based on observations of what a market's behaviors are and then work closely with the market to identify how innovations can add value in unexpected ways.

The cloud is the ultimate open system for this sort of innovation, one that is influenced by factors that are both unknown and unknowable. In other words, no amount of time, information, focus groups, or traditional market research will increase the certainty with which we can innovate.

The most important thing to do in the cloud is to realize that innovation must involve openness and disruption. Then we have to minimize the risk and uncertainty so that we increase the opportunity for finding novel approaches to solving problems and expand the ability to quickly scale, so we can address these problems once a resonant nerve is struck.

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